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Daily Compliance Item- 3.13.15- Current Event

NCAA nearly topped $1 billion in revenue in 2014

USAToday.com

The NCAA had total revenue of nearly $1 billion during its 2014 fiscal year, according to an audited financial statement the association released Wednesday.

The total resulted in a nearly $80.5 million surplus for the year – almost $20 million more than the surplus the NCAA had in 2013 and the fourth consecutive year in which the annual surplus has exceeded $60 million.

USA TODAY Sports has compiled the NCAA’s financial statements for each of the past 10 years, and the latest surplus is the largest the association has recorded during that time. Its greatest previous annual surplus was the $70.9 million it recorded in 2012.

The latest surplus increased the NCAA’s year-end net assets to nearly $708 million — more than double where they stood at the end of its 2008 fiscal year.

Among the NCAA’s nearly $665 million in unrestricted net assets is an endowment fund that had grown to more than $385 million as of the end of the 2014 fiscal year. The fund grew by more than $59 million in 2014, by far the greatest one-year increase since it was established in 2004.

NCAA had $989 million in total revenue in fiscal 2014, according to the statement. It had $908.6 million in total expenses, including $547.1 million distributed to Division I schools and conferences.

The new financial statement – dated Dec. 12, 2014 – also provided some insight into the NCAA’s recent legal costs and how it plans to pay for various legal settlements – and the role of insurance in those matters. The association has been involved in a series of high-profile lawsuits ranging from the Ed O’Bannon and Sam Keller cases relating to the use of athletes’ names and likenesses, to concussions cases, to litigation that rose from the Penn State infractions case.

The concussions case has reached a proposed settlement under which the NCAA would provide $70 million for concussion testing, diagnoses, education and research. The statement states that: “Negotiations are continuing with NCAA insurers to fund the medical monitoring fund, should the settlement agreement reach final approval stage with the Court. Settlement is contingent upon a funding model acceptable to the NCAA.”

As for the $20 million settlement the NCAA has proposed to make in the Keller case, the statement says “funding will be provided by a combination of insurance proceeds and settlements with third parties.”

The statement also takes note of the “unfavorable verdict” the NCAA received in the O’Bannon case, in which U.S. District Judge Claudia Wilken also awarded the plaintiffs their legal costs and fees. The NCAA has appealed the verdict and is contesting the plaintiffs’ lawyers request for nearly $50 million in attorney’s fees and costs.

“At this time,” the statement says, “the NCAA cannot reasonably estimate the amount of loss, if any, that may result should an unfavorable resolution occur upon appeal.”

However, the statement says that the NCAA has incurred attorney’s fees while defending against these various legal matters and those fees are recorded in the statement’s figures. The statement says the fees are included among the expenses categorized as “Association-wide programs.” Those expenses grew by $36 million in fiscal 2014 to $158.1 million. That differential is unlikely to be entirely attributable to increased legal costs, but from the association’s 2010 fiscal year through its 2013 fiscal year, its expenses for association-wide programs were never reported as being more than $128.3 million.

The NCAA gets most of its annual revenue from its long-term multimedia and marketing rights agreements with CBS and Turner Broadcasting that are primarily tied to the Division I men’s basketball tournament — $700 million in fiscal 2014 and growing at rate of about 3% per year.

During a news conference at the NCAA convention in January, NCAA President Mark Emmert said “the other pieces of (association) revenue are predominantly also out of the tournament because of ticket sales and other ancillary efforts around the tournament.”

Emmert did not discuss financial specifics at that time, but he said the association had particularly good revenue growth in 2014, in part because the Final Four drew NCAA tournament-record crowds at the enormous AT&T Stadium in Arlington, Texas. While 2014 tournament attendance declined overall compared to 2013, more than 79,000 attended both the national semifinals and the final.

“Great big venue and lots of people attending,” Emmert said. “It will be hard to achieve that same result in a somewhat smaller venue this year” when the Final Four will be held at Lucas Oil Stadium in Indianapolis.

The endowment fund has been designated as a quasi-endowment, which means the money is intended to be retained and invested, but unlike a permanent endowment, its principal can be spent. It was established in 2004 by the NCAA Executive Committee, a group of college presidents that oversees association-wide matters, primarily to protect against an event that could impact what is overwhelmingly the NCAA’s greatest revenue source: the Division I men’s basketball tournament.